Journal Article

Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation

Jan Zábojník and Dan Bernhardt

in The Review of Economic Studies

Published on behalf of Review of Economic Studies Ltd

Volume 68, issue 3, pages 693-716
Published in print July 2001 | ISSN: 0034-6527
Published online July 2001 | e-ISSN: 1467-937X | DOI: http://dx.doi.org/10.1111/1467-937X.00186
Corporate Tournaments, Human Capital Acquisition, and the Firm Size—Wage Relation

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This paper provides a possible explanation for the empirically observed size-wage effect and inter-industry wage differences. It develops a model in which incentives for workers to accumulate general human capital are provided by corporate tournaments, where workers with the highest level of general human capital win promotions. Given that the prizes in such tournaments are determined by outside market conditions, the investment and the equilibrium wages depend on firm and industry characteristics. The model implies that workers in bigger firms and in more technology intensive and profitable firms and industries acquire more human capital and receive higher wages and benefits.

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Subjects: Economics

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